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Park Place warning causes gaming shares to tank

Oct 8, 2002 7:44 AM

   Wall Street investors have been unforgiving to companies that have been pre-announcing poorer results for the fiscal quarter that ended on Sept. 30 and their full wrath was felt Monday by Park Place Entertainment Corp. (PPE). The company’s shares fell 7.14% to a low of $7.02 with nearly 3.2 million shares changing hands.

   Late last week, company officials said that poor business at the Las Vegas Strip flagship, Caesars Palace, would result in the company reporting earnings per share of between $0.14 and $0.16. This was below analysts’ expectations that according to Thomson First Call averaged $0.19.

   And, possibly pushing the number down even lower, said the company, was the non-operating impairment loss related to the termination of an energy contract with Enron Corp. and damage from recent tropical storms that closed and damaged their Gulf Coast properties.

   Unfortunately for investors in other gaming companies, the poor results at Park Place Entertainment caused a major drop in the shares of its neighbors. The worse of these was Mandalay Resort Group (MBG) whose shares fell 6.14% to $31.80 or $2.08 less than its opening price. Again, volume was heavy with 1.17 million shares trading during the day.

   Also impacted were the two other largest gaming companies, MGM MIRAGE Inc. (MGG), and Harrah’s Entertainment Inc. (HET). MGG closed at $34.70, down $1.67 on relatively light trading of 643,800 shares while Harrah’s dropped $2.02 to $47.49 with slightly more than one million shares changing hands.

   Bucking the trend was the locals’ company, Station Casinos Inc. (STN) that closed at $17.01, an increase of $0.09 for the day.

   Just prior to closing, the shares of Park Place Entertainment were trading at $6.95 a share, the first time since shortly after the 9/11 attacks that the price of the company’s shares had fallen to the $6-plus level.

Bucking the trend?

   Despite Monday’s sell-off of gaming stocks, Steve Wynn expressed confidence in the IPO (initial public offering) he plans to trigger sometime this month in his Wynn Resorts Ltd. (WYNN).

   Wynn says he will be offering 20.5 million shares to sell at between $21 and $23 a share. Also, he plans to raise $340 million from second mortgage notes.

   Managing the Wynn IPO are the combined forces of Deutsche Banc Securities, Bear Stearns, Banc of America Securities and Dresdner Kleinwort Wasserstein.

   Wynn hopes to begin work on his $1.8 billion Le Reve Resort on the grounds of the former Desert Inn Hotel/Casino on the Las Vegas Strip sometime this month, assuming the IPO is successful.

   Also, the company, with includes as a partner Kazuo Okada, a Japanese video game manufacturer, has been licensed to build a casino in Macao.

Still paying the piper

   Initially, Pinnacle Entertainment Inc. (PNK) was fined $2.26 million to settle the complaint that its executives had imported prostitutes to entertain guests at a golf outing sponsored by the Belterra riverboat in Indiana. But, that wasn’t the end of it.

   This week, the company is taking its lumps by fulfilling the second part of the settlement that requires that it close the Belterra for two and one-half days at a cost of more than $1 million. And, the company will be the only loser during the downtime since the Indiana Gaming Commission required that the company pay both the employees and the lost gaming taxes just as they would have had they been operating.

   Although the casino was closed, the Belterra’s hotel, golf course and restaurants were open during the penalty period.

   Still to be resolved are the complaints of two female former employees who initiated the investigation by filing a sexual harassment lawsuit claiming they were told by a casino executive to entice men into the casino.

License renewal on hold

   Because he was chairman and CEO of Pinnacle Entertainment at the time the Belterra held its ill-fated golf outing, R.D. Hubbard was fined $750,000 and forced to give up his Indiana gaming license.

   Hubbard was technically the founder of Pinnacle Entertainment that was an offshoot of Hollywood Park Inc. (HPK). The latter company was essentially a horse racing operator when Hubbard decided to change its vision and become a casino company.

   But, although he changed the nature of the public company, Hubbard, a long-time horse enthusiast with substantial holdings in both thoroughbreds and quarter-horses, retained ownership of Ruidoso Downs in New Mexico.

   By law in New Mexico, racetrack operators must be licensed annually so when Hubbard applied for his renewal, the state gaming regulators decided they needed more information before passing on its merits. Therefore, the Hubbard license matter won’t be taken up until at least the board’s Nov. 5 meeting.

”˜Sell’ says Fulcrum

   An analyst for Fulcrum Global Partners has placed a “sell” rating on the shares of Boyd Gaming Corp. (BYD) that has been flying high for the past few months.

   Joseph Greff, who noted that his company only has two ratings for gaming stocks, buy and sell, said he believed there were potential negatives that were being ignored by those who supported Boyd Gaming.

   Among the potential problems, he said, were the potential expansion of gaming in Pennsylvania through the approval of slot machines at the state’s racetracks; the potential of a new Indian casino that would compete with Boyd Gaming’s Blue Chip casino in Michigan City, Ind., and the company’s older properties in Las Vegas that could erode profits in the future.

   Ever since Boyd Gaming acquired Delta Downs in Vinton, La., and converted the track into a “racino” by installing 1,499 slot machines averaging nearly $300 a day in revenue, the company’s share price has hovered in the area of mid-to-high teens.

On Monday, Boyd shares fell $0.44 to $16.55 a share.

Pennsylvania tracks

   The possibility of slot machine legislation in Pennsylvania has created new interests in building racetracks in the state.

   Both candidates for governor have indicated they would support installing slot machines at the existing tracks — Philadelphia Park, Penn National, both thoroughbred facilities, and Pocono Downs and Ladbroke at the Meadows that feature harness racing — as both a means of improving the competitiveness of these tracks who are under pressure from states that already have “racinos” and to raise additional tax dollars for the state’s coffers.

   However, the prospects of slot machine revenues has prompted groups to offer to build and operate tracks in Erie and Chester. Their offers, obviously, would be revisited if the slot machine proposal fails to materialize.

Having second thoughts

   For a long time, Chicago Mayor Richard Daley has opposed casino gambling for his city, but that seems to be changing. Last week, Daley indicated he may be changing his mind.

   Pressed with the need for a new source of revenue to help the city meet its budgetary needs, Daley is reconsidering his position on gambling in hopes of developing the funds to maintain his ambitious neighborhood building program and to provide a needed boost to the city’s convention and tourism industries.

   Still available is Illinois’ 10th and final riverboat license that has been a source of controversy since gaming regulators ruled the previous license holder had to give up the license since it would never be granted approval for a new location.

   Chicago observers have noted a number of sites that Daley could use to locate a riverboat casino operation within the city limits. Also, the mayor has indicated in the past that should Chicago go forward with a gambling operation he would favor a city-state ownership arrangement similar to the system employed by the province of Ontario, Canada.

   Politicos were of the opinion that a Daley decision to seek the gaming license would be enough to guarantee that the license would end up in the Windy City.

Indian honorees

   A California senator and an Indian Country website operator were honored recently at a customer reception sponsored by Sodak Gaming. The company, an affiliate of International Game Technology (IGT), is the principal supplier of gaming products to tribal casinos.

   Honored were Cal. State Sen. Jim Battin, who received the “Meritorious Service to Indian Country” award, and Victor Rocha, whose website has become a clearinghouse of Indian gaming issues.

   During the event, Roland Gentner, Sodak CEO, assured tribal members that the launching of the Tribal Scholarship Award would be an additional program and would not serve as a replacement for previous philanthropic programs.

Poll opposes new casinos

   Recent polls in Connecticut indicate that nearly two-thirds of the state’s residents oppose the opening of any more casinos. This has not deterred the recently-recognized Eastern Pequot and Paucatuck Eastern Pequots Tribe from going forward with their casino plans.

   Tribal casinos were authorized by the National Indian Gaming Regulatory Act in states where some type of casino gambling was taking place. In Connecticut, where the casinos were opposed by existing government leaders, the courts ruled that since “Las Vegas Nights” were conducted by charitable groups, the Indians could legally open casinos.

   Since then, both the Foxwoods Resort Casino and the Mohegan Sun have become two of the world’s most successful gambling facilities.

   To curb additional casinos, the state’s attorney general, Richard Blumenthal, has urged Gov. John G. Rowland to hold a special session of the legislature to have lawmakers rescind the “Las Vegas Nights” law to eliminate the need to approve additional tribal casinos.

   It appeared, however, that the state will wait until January before addressing the situation.

The Insider

   Boyd Gaming Corporation (BYD) will hold a conference call on Thursday, Oct. 24, at l:30 p.m. PDT to report its third quarter fiscal results. On Wednesday, Oct. 23, MGM MIRAGE Inc. (MGG) will report its quarterly financial results in a conference all at 8 a.m., PDT, and on Wednesday, Oct. 30, at 10 a.m. PDT, Station Casinos Inc. (STN) will rep